Merit Real Estate

5 Factors Affecting the Real Estate Market

factors affecting the real estate market

Factors Driving the Shift in the Real Estate Market

The real estate market is a stable and mostly predictable environment for investing. Although stable and predictable, the local and national real estate market is not impervious to changes, shifting trends, and occasional volatility. Let’s take a look at the top 5 factors affecting the real estate market today.

Higher Mortgage Rates

It’s no secret that mortgage rates have spiked over the past year. In September of 2021, interest rates for a new 30-year mortgage were at 2.9%. Currently (9/9/2022), rates are hovering just below 6% (5.89) for a 30-year fixed rate mortgage. This increase in interest rates has caused a steep decline in the number of applications for new mortgages nationwide.

Top 5 Factors Affecting the Real Estate Market

Many buyers are putting their home purchase activities on hold due to the higher mortgage rates.  The rate increase is pricing many buyers out of their preferred markets. Higher interest rates mean higher monthly mortgage payments. Borrowers are also taking a “wait and see” approach; hoping that the rates will drop sooner than later.

Increasing Inventory of Homes for Sale

With the rising interest rates causing a decline in the number of home buyers entering the market, homes are taking longer to sell. New listings are also popping up on the market at a high rate than a year ago. As these two conditions continue, the inventory of homes currently for sale increases.

More homes for sale means more options for potential buyers. Since there are also fewer buyers, the market leverage tilts toward the home buyer. They now have more potential to negotiate better terms with a seller since the likelihood of multiple offers is way lower than it was not too long ago.


Over the past 5 to 7 years, home prices (nationally) have appreciated at unprecedented rates. In several markets, homes have become unaffordable for many people. This unaffordability has pushed buyers out of their preferred areas or out of the purchase market altogether. Renting has become the reality for those that cannot afford to buy a home in the neighborhoods where they want to live.

It has been a seller’s leveraged market. This is yet another market condition that is contributing to a decrease in new mortgage applications and active home buyers. If prices hold steady or begin to depreciate, we may see an uptick in buyer activity. Until then, there will be a portion of the buyer pool that is willing to wait it out to see if prices soften.

Housing Affordability

Economic Uncertainty

Economic factors are always vital to how the real estate market performs. Elections and political climate factor in as well. Over the past 12 to 18 months, the U.S. has experienced a shift in the perceived state of our economy. Headlines of an imminent recession and struggling economy have popped up throughout the media. Regardless of whether these headlines are accurate or not, our perception of the economy is being reshaped.

With economic uncertainty, people tend to spend less money. They are also less likely to change jobs or move into a new home. This is a major factor affecting the real estate market.

Time of Year

With almost every type of market, there are annual cycles that can be observed. The real estate market is no different. Nationally, the market shifts seasonally. The most active time of the year for home buyers and sellers is early spring. By the time March comes around, buyer activity increases and so do listing prices. Spring is known as the prime time to buy…and sell.

As we move into the summer months, the temperature gets hotter while the real estate market starts to cool. By the end of summer, those inflated listing prices start to fall back to Earth. In the U.S., Fall and winter tend to have the least amount of activity when it comes to real estate sales, listings, and aggressive pricing tactics. If the market is looking down during the winter months, don’t worry; Spring is right around the corner!


These 5 factors affecting the real estate market are fluid. Things can change very quickly with our economy, buyer demand, interest rates, inventory, and seasonal trends. It is important to monitor these factors in order to get valuable insight into the current state of our local market.

Overall, real estate is one of the most solid investments out there. It is susceptible to peaks and valleys like any other investment, but throughout time, real estate has proved to be an asset that is ever-increasing in value.

Almost every real estate professional will tell you it is always a good time to buy or sell. There is actually a lot of truth in that statement; regardless of the current market conditions. The key for home buyers and sellers is to find the nuances in the market that make it the right time for them to buy or sell. It all comes down to what our specific goals and needs are and how the current market affects them.